| Summary of Significant Accounting Policies | 1. Summary of Significant Accounting Policies Organization The Castle Group, Inc. was incorporated under the laws of the State of Utah on August 21, 1981. The Castle Group, Inc. operates in the hotel and resort management industry in the State of Hawaii, New Zealand, and the Commonwealth of Saipan under the trade name “Castle Resorts and Hotels.” The accounting and reporting policies of The Castle Group, Inc. conform with accounting principles generally accepted in the United States of America (“GAAP”) and with practices within the hotel and resort management industry. Principles of Consolidation The consolidated financial statements include the accounts of The Castle Group, Inc. and its wholly-owned subsidiaries: Hawaii Reservations Center Corp., HPR Advertising, Inc., Castle Resorts & Hotels, Inc., Castle Resorts & Hotels Thailand Ltd., NZ Castle Resorts and Hotels Limited (a New Zealand Corporation), NZ Castle Resorts and Hotels’ wholly-owned subsidiary, Mocles Holdings Limited (a New Zealand Corporation), Castle Resorts & Hotels NZ Ltd., Castle Group LLC (Guam), Castle Resorts & Hotels Guam Inc. and KRI Inc. dba Hawaiian Pacific Resorts (Interactive). Collectively, all of the companies above are referred to as “the Company” throughout these consolidated financial statements and accompanying notes. All significant inter-company transactions have been eliminated in the consolidated financial statements. Use of Management Estimates in Financial Statements The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Accounts Receivable The Company records an account receivable for revenue earned but not yet collected. The Company estimates allowances for doubtful accounts based on the aged receivable balances and historical losses. If the Company determines any account to be uncollectible based on significant delinquency or other factors, it is immediately written off. An allowance for bad debts has been provided based on estimated losses amounting to $178,376 and $190,579 as of December 31, 2015 and 2014, respectively. Property, Plant, and Equipment Property, plant, and equipment are recorded at cost. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounting records, and any resulting gain or loss is reflected in the Consolidated Statement of Operations for the period. The cost of maintenance and repairs is expensed as incurred. Renewals and betterments are capitalized and depreciated over their estimated useful lives. At December 31, 2015 and 2014, property, plant, and equipment consisted of the following: 2015 2014 Real estate - Podium $7,095,179 $8,093,522 Land and improvements 248,000 0 Equipment and furnishings 1,569,805 1,644,081 Less accumulated depreciation (2,880,609) (3,035,797) Net property, furniture and equipment $6,032,375 $6,701,806 Depreciation is computed using the declining balance and straight-line methods over the estimated useful life of the assets (Equipment and furnishings 5 to 7 years, Podium 50 years, and Improvements 30 years). Land is not depreciated. For the years ended December 31, 2015 and 2014, depreciation expense was $217,269 and $227,143, respectively. Goodwill and Intangibles The Company performs impairment tests of goodwill at a reporting unit level, which is one level below the operating segments. The Company’s operating segments are primarily based on geographic responsibility, which is consistent with the way management runs its business. The goodwill impairment test consists of a two-step process, if necessary. The first step is to compare the fair value of a reporting unit to its carrying value, including goodwill. The Company typically uses discounted cash flow models to determine the fair value of a reporting unit. The assumptions used in these models are consistent with those the Company believes hypothetical marketplace participants would use. If the fair value of the reporting unit is less than its carrying value, the second step of the impairment test must be performed in order to determine the amount of impairment loss, if any. The second step compares the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit's goodwill exceeds its implied fair value, an impairment charge is recognized in an amount equal to that excess. The loss recognized cannot exceed the carrying amount of goodwill. The Company has the option to perform a qualitative assessment of goodwill prior to completing the two-step process described above to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill and other intangible assets. If the Company concludes that this is the case, it must perform the two-step process. Otherwise, the Company will forego the two-step process and does not need to perform any further testing. During 2015, the Company performed qualitative assessments on the entire consolidated goodwill balance. The Company has completed its annual impairment testing of its goodwill at December 31 of each of the years presented. The Company has not recognized any impairment losses during the periods presented. Revenue Recognition In accordance with ASC 605: Revenue Recognition Specifically, the Company recognizes revenue from the management of resort properties according to terms of its various management contracts. The Company has two basic types of agreements. Under a “Gross Contract” the Company records revenue which is based on a percentage of the gross rental proceeds received from the rental of hotel or condominium units. Under a Gross Contract the Company pays a portion of the gross rental proceeds to the owner of the rental unit. The Company only records the difference between the gross rental proceeds and the amount paid to the owner of the rental unit as “Revenue Attributed from Properties.” Under the Gross Contract, the Company is responsible for all of the operating expenses for the hotel or condominium unit. Under a “Net Contract”, the Company receives a management fee that is based on a percentage of the gross rental proceeds received from the rental of hotel or condominium units. Under the Net Contract, the owner of the hotel or condominium unit is responsible for all of the operating expenses of the rental program covering the owner’s unit and the Company also typically receives an incentive management fee, which is based on the net operating profit of the covered property. Additionally, under a Net Contract, in most cases we employ on-site personnel to provide services such as housekeeping, maintenance and administration to property owners under the Company’s management agreements and for such services the Company recognizes revenue in an amount equal to the expenses incurred. Revenues received under the Net Contract are recorded as Management and Service Income. Under both types of agreements, revenues are recognized after services have been rendered. A liability is recognized for any deposits received for which services have not yet been rendered. Under a Gross Contract, the Company records the expenses of operating the rental program at the property covered by the agreement. These expenses include housekeeping, food & beverage, maintenance, front desk, sales & marketing, advertising and all other operating costs at the property covered by the agreement. Under a Net Contract, the Company does not record the operating expenses of the property covered by the agreement, other than the personnel costs mentioned in the previous paragraph. The difference between the Gross and Net Contracts is that under a Gross Contract, all expenses, and therefore the ownership of any profits or the covering of any operating loss, belong to and is the responsibility of the Company; under a Net Contract, all expenses, and therefore the ownership or any profits or the covering of any operating loss belong to and is the responsibility of the owner of the property. The operating expenses of properties managed under a Gross Contract are recorded as “Attributed Property Expenses.” Advertising, Sales and Marketing Expenses The Company incurs sales and marketing expenses (mostly consisting of employee wages) in conjunction with the production of promotional materials, trade shows, and related travel costs. The Company expenses advertising and marketing costs as incurred or as the advertising takes place. For the years ended December 31, 2015 and 2014, total advertising expense was $1,083,883 and $1,050,200 respectively. Stock-Based Compensation The Company has accounted for stock-based compensation by recording an expense associated with the fair value of stock-based compensation over the requisite service period, which typically represents the vesting period. For employees, the measurement date is the grant date. For non-employees the measurement date is the earlier of the date of performance completion or the date of performance commitment if a sufficient disincentive to perform exists. The Company currently uses the Black-Scholes option valuation model to calculate the valuation of stock options and warrants at the measurement date. Option pricing models require the input of highly subjective assumptions, including the expected price volatility. Changes in these assumptions can materially affect the fair value estimate. In May 2014, the Company granted warrants to purchase 50,000 shares of the Company’s common stock at a price of $1.00 per share, exercisable on or before May 28, 2019 to each of its eight members of the board of directors. Using the Black-Scholes model, the warrants were valued at $0.1233 for each warrant and the Company recorded an expense of $49,320 and an increase of the same amount to Additional Paid in Capital. In November of 2014, the Company issued 20,000 shares of common stock to an employee as compensation. The shares were unregistered shares and therefore are restricted shares. The Company valued the shares at $0.24 per share and recorded compensation expense of $4,800. In May of 2015, the Company issued 10,000 shares of common stock to an employee as compensation. The shares were unregistered shares and therefore are restricted shares. The Company valued the shares at $0.20 per share and recorded compensation expense of $2,000. Income Taxes Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The Company has recorded tax benefits for the Company’s US based operations as these benefits have been used in the past, and are likely to be used in the future. The Company does not recognize any tax benefits from its net operating losses from the Company’s foreign operations, as it is not certain that these tax benefits will be realized in the future. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards. The Company’s policy is to recognize potential interest and penalties accrued related to unrecognized tax benefits within income tax expense. For the years ended December 31, 2015 and 2014, the Company did not recognize any interest or penalties in its Statement of Operations, nor did it have any interest or penalties accrued in its Balance Sheet at December 31, 2015 and 2014, relating to unrecognized benefits. Basic and Diluted Earnings per Share Basic earnings per share of common stock were computed by dividing income available to common stockholders by the weighted average number of common shares outstanding. Diluted earnings per share were computed using the treasury stock method for vested warrants and the if-converted method for redeemable preferred stock. The calculation of diluted earnings per share for 2015 and 2014 includes 368,333 shares which would be issued upon conversion of the outstanding $100 par value redeemable preferred stock of the Company. During the years ended December 31, 2015 and 2014, the Company had warrants for shares totaling 400,000 outstanding at each year end, respectively, that were excluded from the computations of diluted net income per share because the exercise prices were greater than the market prices during the reporting periods. Concentration of Credit Risks The Company maintains its cash with several financial institutions in Hawaii and New Zealand. Balances maintained with these institutions are occasionally in excess of federally insured limits. As of December 31, 2015 and 2014, the Company had balances of $1,261,312 and $620,693, respectively, in excess of US federally insured limits of $250,000 per financial institution. Concentration in Market Area The Company manages hotel properties in Hawaii and New Zealand, and is dependent on the visitor industries in these geographic areas. Fair Value of Financial Instruments Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. A fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, may be used to measure fair value. The carrying values of cash and cash equivalents, accounts receivable, and accounts payable and accrued expenses approximate fair value due to the relatively short-term maturities of these financial instruments. The carrying values of notes receivable and notes payable approximate fair value as these notes have interest rates or imputed interest rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Long-Lived Assets The Company regularly evaluates whether events or circumstances have occurred that indicate the carrying value of long-lived assets may not be recoverable. When factors indicate the asset may not be recoverable, The Company compares the related undiscounted future net cash flows to the carrying value of the asset to determine if impairment exists. If the expected future net cash flows are less than the carrying value, an impairment charge is recognized based on the fair value of the asset. No impairments were indicated or recorded during the years ended December 31, 2015 and 2014. Guarantees The Company records a liability for the fair value of a guarantee on the date a guarantee is issued or modified. The offsetting entry depends on the circumstances in which the guarantee was issued. Funding under the guarantee reduces the recorded liability. When no funding is forecasted, the liability is amortized into income on a straight-line basis over the remaining term of the guarantee. During the years ended December 31, 2015 and 2014, there was no amortization recorded. Investment in Limited Liability Company On July 23, 2010, the Company acquired a 7% common series interest in the ownership of a hotel located in Hawaii. As of December 31, 2015 and 2014, the ownership interest was 7.0% and 5.9% (resulting from dilution) respectively. The investment is accounted for as an equity method investment and during the years ended December 31, 2015 and 2014, the Company recognized $114,503 and $202,995, respectively, in other income resulting from the portion of net income attributable to the common series ownership interest. Foreign Currency Translation and Transaction Gains/Losses The US dollar is the functional currency of the Company’s consolidated entities operating in the United States. The functional currency for the Company’s consolidated entities operating outside of the United States is generally the currency of the country in which the entity primarily generates and expends cash. For consolidated entities whose functional currency is not the U.S. dollar, The Company translates its financial statements into U.S. dollars. Assets and liabilities are translated at the exchange rate in effect as of the financial statement date, and the line items of the results of operations are translated using the weighted average exchange rate for the year. Translation adjustments resulting from these translations are included as a separate component of stockholders’ equity. Gains and losses resulting from foreign currency transactions are included in the consolidated statements of operations. New Accounting Pronouncements From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption. In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers The standard is effective for annual periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Company is currently evaluating the impact of its pending adoption of ASU 2014-09 on the Company’s consolidated financial statements and has not yet determined the method by which it will adopt the standard in 2018. In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern. In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes In February 2016, the FASB issued ASU No. 2016-02, Leases |
